Liability is (and should be!) a major concern for business owners. Smart policies and procedures can go a long way towards minimizing your liability – but the fact is, short of closing down your business, it’s all but impossible to completely eliminate liability risks in your business.
That’s why liability management, the concept of shielding your personal assets, is so important for business owners. In the event that your business is sued, the last thing you want to worry about is whether your personal assets are at risk.
Today, I’m going to share three practical tips that will help you think through this process. As always, if you have specific questions regarding your business, give me a call!
1. Think twice before organizing as a sole proprietorship. A sole proprietorship may be quick and easy to set up, but it won’t provide protection for your personal assets. Structuring your business as a corporation or limited liability company (“LLC”) will give you better protection. As the name limited liability suggests, an LLC keeps your personal assets separate from your business. LLC’s protect your assets not just from lawsuits, but also from other creditors. We not only help business incorporate properly, we also serve as registered agent to protect our Clients.
2. Keep personal assets separate from business assets. Commonly referred to as commingling, too many small business owners mix their personal and business funds in the same bank accounts. It’s critical to properly capitalize your business, and to keep all accounts separate. Why? If an issue arises, a court could decide that the business entity is a “mere instrumentality” or your “alter-ego” and allow the Plaintiff to pierce the corporate veil, i.e., seek your personal assets. There’s more to this process than we can discuss here – so please give me a call if you’d like to learn more!
3. Make sure your contracts are clear and unambiguous. An effective contract can go a long way towards limiting your personal liability. First and most importantly, operating without a contract can lead to disaster, because a client or customer could argue that he intended to do business with you as an individual, not as a business entity, and that your personal assets should be fair game in a lawsuit. But just using a generic contract isn’t enough. We can help you create agreements that clearly and explicitly define and limit your liability. Let us know if you’d like to learn more!
Questions or comments? Feel free to get in touch with us today for more information.